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Toward thriving labor markets

Four strategies for European Union member states to move from the status quo to sustainability.

Overview

The prospect of achieving thriving labor markets seems daunting for European Union member states. Unemployment, underemployment, a declining economy, changing demographics and skills shortages complicate real prospects for meaningful and sustained change. With increasing national debt in many countries, many governments have responded with knee-jerk reactions to cut budgets and, hence, jobs. The market has responded to this sentiment with downsizing or “right-sizing” to assuage the unions. The need to tackle unemployment is increasingly taking on a new urgency.

How can EU member states move away from the status quo of an anemic recovery to sustainability in employment and thriving labor markets? Accenture’s point of view—derived from our analysis of key trends, data and leading practices across various EU states—is that change can happen. It demands a willingness to look at the issues anew and address them with holistic strategies that can alleviate market fragmentation, change behavior among the unemployed, close widening skills gap and transform a weak business environment.

Background

Moving toward a thriving labor market begins with understanding the current landscape and drawing insights into trends on the horizon.

Today, the economy is slowly recovering from a crippling downturn, and unemployment is again at the forefront of policy agendas. In 2008, GDP growth rates declined and even turned negative in 2009, reaching -4.9 percent in both the EU and the euro area.1 The EU emerged from recession in Q3 2009 after five consecutive quarters of negative growth.2 As would be expected, this negative growth significantly impacted employment levels across a majority of member states with some like Germany emerging unscathed, owing to proactive policy measures.

Eurostat estimates that 24.325 million people in the EU-27—of whom 16.925 million were in the euro area (EA-17)—were unemployed in January 2012.3 Unemployment rates across EU-27, EA-17, the United States and Japan from January 2000 to January 2012 suggest that an overall contraction in GDP with reduced aggregate demand has lowered employment levels (as a trailing indicator) even though in some economies the results are less obvious, owing to structural adjustments in their labor markets.

Analysis

Accenture has studied today’s environment and identified four key challenges that policymakers and employment agencies must address to transform the labor market:

A lack of employment opportunities and a weak business environment
Due to the EU-27 still slowly emerging from a recession, demand for labor is still weak and business creation rates are low. There is fear in markets and a lack of investment in new jobs, which creates a vicious cycle.

Fragmented labor markets and a lack of understanding of skills and jobs matching
There is a mismatch between skills and employment opportunities in many European economies. Some of the best educated workers do not have the skills that employers are seeking. Moreover, there are unemployed workers with irrelevant specialized skills and positions that require skills that cannot be learned quickly. There has also been a fundamental shift in the dynamics of the labor market.

A lack of right behavior to enter the labor market—especially among the hard to reach
As a result of long periods of unemployment, some workers have lost the incentive to work and re-enter the labor market. Many are lacking right behaviors and attitudes to break free from the unemployment trap—the dependency on welfare payments and low perceived benefits of work. This effect has become widespread among the harder to reach groups of society and minorities.

A widening skills gap and changing demographics
In a trend often related to workers’ lack of right behavior, many have lost the skills that are relevant in today’s marketplace. Out of work, they have not benefitted from employer generated training and education—and they have not pursued such programs on their own. This makes it difficult for prospective employees to remain competitive and adapt to employers’ changing demands.

Recommendations

Accenture’s work across the European labor and employment community demonstrates the key strategies that are needed—and that each can be tailored to every country’s unique circumstances.

The growth agenda. To boost the business environment, governments should support a key sector in the economy—the growth of existing small and medium enterprises.

The intelligence agenda. To move past the challenge of a fragmented labor market and lack of understanding of skills and jobs matching, many countries have deployed technology and management processes to understand the structural make-up of the labor market.

The incentives agenda. To encourage people to get back into the labor market and off of benefits, various incentives—such as work flexibility and short-term work arrangements—should be more widely adapted.

The employability agenda. Governments have a fundamental role to play in addressing the skills gap that has resulted from shifts in the labor market as well as long-term unemployment. There are many opportunities to expand the management of training institutions and systems, develop specialized training programs and certifications as well as review and develop vocational training policies.

The key to realizing thriving labor markets is to tailor these strategies to the local context, which requires identifying the right partners to assist the transformation process while closely collaborating with employees, employers, various government departments and NGOs. If governments can seize this opportunity and adapt their employment policies appropriately, they are well positioned to unleash labor market potential, move from the status quo to sustainability and transform their economies for a better future.